China cuts interest rates for lenders to small business in new move to shore up growth

BEIJING, China – China cut interest rates Thursday on loans by small lenders that finance the country’s entrepreneurs in a new move to shore up lacklustre economic growth.

Beijing has cut its benchmark lending rate six times since last November as economic growth slowed. But those cuts applied to large state-owned banks that lend mostly to government companies, not to entrepreneurs who generate most of China’s new jobs and wealth.

On Thursday, the People’s Bank of China cut the rate on a one-week loan by small banks and credit co-operatives from 5.5 per cent to 3.25 per cent. The rate for an overnight loan was cut from 4.5 per cent to 2.75 per cent.

Communist leaders have affirmed their support for a “new normal” of slower, more self-sustaining growth based on domestic consumption instead of trade and investment. But they are trying to keep a 5-year-old economic downturn from deepening too sharply and causing a politically dangerous spike in job losses.

Growth fell to a six-year low of 6.8 per cent in the latest quarter, less than half the past decade’s peak of 14.2 per cent in 2007.

The International Monetary Fund and private sector forecasters expect growth to fall to 6 per cent or lower over the next two years. President Xi Jinping said Nov. 3 that the country needs at least 6.5 per cent a year through the end of this decade to achieve the ruling Communist Party’s goal of making the population “moderately prosperous.”

Communist leaders have promised to open state-dominated industries wider to private sector competitors, but have yet to cut back the privileges of state companies, which include monopolies and low-cost loans.